Honolulu – The Department of Commerce and Consumer Affairs’ (DCCA) Commissioner of Securities wants to remind the public to remain vigilant and beware of illegal pyramid investment schemes.

In its purest form, a pyramid investment scheme is a plan or program in which people invest in the right to offer the investment to others. What distinguishes these schemes from legitimate investments is that a pyramid concentrates mainly on the quick profits to be earned by recruiting others to invest. Members make money by offering this right to new investors, down the pyramid, who in turn offer the right to those ever lower in the chain. The scheme is called a “pyramid” because the structure grows like a pyramid as each new level of participants must be greater than the previous level for the program to sustain itself. There is no legitimate product, business, or investment, just money changing hands and newer investor money being paid to older investors.

The pyramid eventually collapses, as the ever-increasing number of new participants, who are trying to recover their initial investment, attempt to recruit the ever-decreasing number of prospects available in a particular area. Later participants lose their money with no chance of collecting, when the program reaches the point where further recruitment becomes impossible.

The Hawaii Securities Commissioner strongly cautions Hawaii residents to be cautious and not become involved in any investment which appears to be an illegal pyramid scheme. Many illegal pyramids attempt to establish their legitimacy by purporting to characterize the investment as a “donation” or “blessing.”

Under State securities laws, interests in a pyramid investment scheme can constitute a “security.” Therefore, participation in a pyramid scheme may be a violation of state securities laws. DCCA’s Securities Enforcement Branch (SEB) receives and investigates complaints regarding potential violations of Hawaii securities laws and prosecutes securities fraud as well as other securities law violations.

Anyone who has been solicited to invest in a pyramid scheme or who may otherwise have information regarding a pyramid scheme is urged to contact the SEB at 808-586-2740 or toll free at 1-877-HI-SCAMS.

Securities Enforcement Branch
Oahu (808) 586-2740
Kauai: (808) 274-3141, followed by 62740 and the # sign
Maui: (808) 984-2400, followed by 62740 and the # sign
Hawaii: (808) 974-4000, followed by 62740 and the # sign
Lanai and Molokai: 1-800-468-4644 (toll free), followed by 62740 and the # sign
Email: seb@dcca.hawaii.gov